More money in the hands of the consumer increases demand...

[Libertie76]

That's theoretical. Real life would be discussing if all current resources are being utilized to the maximum possible extent.

I get your theory, but you keep basing your theory on conditions that don't currently exist, and you ignore offseting factors to your theory, such as our ability for producers to match demand.

Why don't you tell me a resource that is not scarce before changing the subject of the quote you quoted

 

[What if...?]

It's all about the "demand participants" not the "job creators"

That "consumption facilitators", not job creators.

 

[Libertie76]

I'm not going to use your silly Austrian definitions. Scarcity should mean what it means in plain English. Austrians have altered definitions of words just to suit their circular arguments.



Look up "starve the beast." Reagan was under the influence of an Austrian quack at the time who thought it would be a good idea to run up such a large deficit that we would have to abolish the social programs that they didn't like. So he did everything he could to grow the deficit - he cut taxes, and he increased spending. And because he was against social spending, and because he was a hawk, he chose to spend that money on defense. Happily, they were wrong about just about everything.



Because it's very debateable, and because we are on a debate site. Also because you threw it out there like it's a given. Also because I hate it when ideologues change the definitions of words to suit their ideologies.



Because there was a true shortage - labor. But certain conditions have to be met before your blanket statement becomes true.



Now you're just talking religion. Gub'ment bad, I know, I know. Heard it before.

Wtf does Austrian economics have to do with any of this. What is the definition of scarcity.

Yet your being Parisian in a non partisan debate which is exactly what I said

What definition did I change

Tell me how I'm wrong please

 

[imagep]

I guess a better way of putting it would be that aggregate demand is aggregate supply. In order for demand in the aggregate to increase, aggregate supply must have increased. You are right--a product does not have to be produced prior to it being ordered. And producers do not seek to produce more than they estimate they will sell. That is all correct.

At the very start, the entrepreneur will determine what to produce and how much based on expected demand and purchase the materials to do so, before any demand actually exists. He sees a want and tries to turn that want into demand for his products. But that is not demand coming first, for expected demand is not the same as demand in any way.

Additionally, in order for an entrepreneur to invest in the first place, he must have money that is not being spent on consumer goods--in other words, he increases production only by deferring consumption, aka saving. In an economy with a stable money supply (one with full reserve banking), this principle is very obvious to see.

I agree with all of that.

But even in an economy like ours that has fractional reserve banking and an elastic money supply, the same principle still holds. An expansion of the money supply increases demand in nominal terms, and initially seems to increase production. But the result is a misallocation of resources to a degree akin to the amount of loans funded by newly created credit in excess of actual savings. The structure of production fails to align with actual consumer preferences, and a recession is an inevitable result.

I disagree that consumption based upon borrowing results in a misallocation of resources. It can result in resources being utilized, which otherwise may not have been utilized.

Let's say that the government hires 100 unemployed people to pick up trash along side the road, how is that a misallocation of resources? These people are now at least semi-productive, when they were totally unproductive before.

If the government got the money to pay these people by taxing away excess money from the rich, or by borrowing it away (on a voluntary bases) from anyone, or even by printing it, I still don't see how any resources have been misallocated, and this cycling of money isn't going to cause inflation, as long as there is no barrier to the production of additional goods (obviously some is possible).

 

[What if...?]

What's odd is that it was only last week that I was reading that the inventory of oil was still increasing.

The CNN article I read today attributed the rise in the price of oil to a refinery strike. I can't see how that would effect the price of oil though. Gas, yes, certainly, but not oil, a refinery strike means a temporary drop in demand for oil, not more demand.

They just didn't want to say "speculators".

 

[Libertie76]

1. Look argue with the definition. It means shortage.

2. :shrug:

3. So let's say the economy grows 3% per year for the next ten years, if the top 10% ingests 97% of all wealth created in that time, would you call that a success?\

4. You might be on to something if you stop and read what you said carefully.....You can't separate social problems and issues from the question of growth and efficiency. After all, who are we doing this for if not the people in the economy that we're trying to grow!!

5. The combine (farm implement) displaced millions of farm workers, but there were lots of other jobs that machines couldn't do.
The answer to the most significant invention in the last 500 years is the steam engine. It was able to do physical labor much more efficiently than people and animals. This freed people up to pursue more intellectually driven occupations (and the economy grew). What is AI? Where steam engines displaced physical labor, AI will displace intellectual labor. What's left? Creativity? Between Labor, intellect and creativity, creativity is the trait that we have as a specie in the least abundance. I suspect that as automation, AI, robots whatever you want to call it displace human workers, those that aren't the owners of production or very creative will have difficulty finding work.
Using the past as an indication of the future is generally a good idea, but now you're going to have to look beyond what you think you know, toss you're intuition out the window because we are on the cusp of a paradigm shift as significant as the steam engine. You're going to have to innovate in you're thinking when it comes to AI, because it will (and already is) doing the jobs of millions of people.

The steam engine was invented in the early 1700's, but it was Watt in 1765 (1) who revolutionized it. By 1800 (2) the steam engine was in wide use. and really allowed world populations to grow

View attachment 67180313

6. By that definition EVERYTHING is scarce and is therefore a meaningless definition when discussing economics.

7. Again, you cannot decouple the two.

1. "DEFINITION OF 'SCARCITY'
The basic economic problem that arises because people have unlimited wants but resources are limited. Because of scarcity, various economic decisions must be made to allocate resources efficiently."

3. Again it's not about social political views, it's about my economic statement on what is economic growth

4. Not in the debate on what causes economic growth, has nothing to do with happiness index

5. Again, this rant has absolutely nothing to do with economic growth

6. Hahaha DEFINITION OF 'SCARCITY'
The basic economic problem that arises because people have unlimited wants but resources are limited. Because of scarcity, various economic decisions must be made to allocate resources efficiently.

That definition is the basis for economizing

 

[Lakryte]

I agree with all of that.

Good, then we don't disagree as much as I thought.

I disagree that consumption based upon borrowing results in a misallocation of resources. It can result in resources being utilized, which otherwise may not have been utilized.

Let's say that the government hires 100 unemployed people to pick up trash along side the road, how is that a misallocation of resources? These people are now at least semi-productive, when they were totally unproductive before.

If the government got the money to pay these people by taxing away excess money from the rich, or by borrowing it away (on a voluntary bases) from anyone, or even by printing it, I still don't see how any resources have been misallocated, and this cycling of money isn't going to cause inflation, as long as there is no barrier to the production of additional goods (obviously some is possible).

Ahh not consumption based upon borrowing, but consumption based upon an expansion of the money supply. This was made clear with the housing market. People were spending more than ever and saving less, but the money supply expanded to allow for low interest rates and cheap loans that could not have existed without such expansion. This allowed people to spend more on homes than they could have otherwise, pressuring home prices up.

Construction industries saw the high price of houses as a signal to build more. The presence of artificially cheap credit due to monetary expansion made building even more attractive and allowed them to build more, whereas if there was no such monetary expansion there would have been no loans to finance such building.

The result was an overproduction of homes, and when it became apparent that the real savings did not actually exist to pay for those homes, prices collapsed and the projects went to pieces. The construction industry saw unemployment rates near 25%, for example, exemplifying the degree labor was misallocated into construction.

If the money supply had not increased, the price of borrowing would have been significantly higher, discouraging people from taking on mortgages as they did, encouraging banks to be more selective (given they would be getting higher interest rates), and discouraging home builders from a large increase in housing stock. In other words, the housing bubble would have never existed in the first place.

 

[JohnfrmClevelan]

Initially, yes. That $100 will spur an increase in production in the particular area that is spent, in this case bread. But what happens later down the line? The increase in supply has devalued the price of the dollar, making each unit worth less. This is what I mean when I say the creators and initial receivers of the money (the government and the baker) will benefit at the expense of those who receive the money later, when prices are higher than they would have otherwise been.

The current U.S. capacity utilization for food is 95%. If the baker was creating 1 loaf of bread, and the government then demands 100, prices would inevitably rise. Your example assumes the baker is operating at less than 1% capacity. A realistic example would be the baker producing 1.05 loaves of bread (100% capacity) because of printed money going after it instead of 1 (95% capacity). Would that cause any significant rise in price? Likely not, but nor would it cause any significant rise in production.

Unused capacity does serve a purpose--it can prevent massive increases in prices if consumer demand increases, for example. Yet if that capacity is forced to be put to use due to an increase in the supply of money, the result will be merely a temporary increase in production and then a price level higher than it otherwise would have been.

You have given zero evidence, or even reasoning, why prices should go up when the economy is perfectly capable of increasing production. You have merely applied some Austrian religion.

Your claim is that, all else being equal, new money will result in a devalued dollar, due to the supply/demand of dollars. Then, you don't bother to consider any other condition that might make your assumption incorrect. That's religion, not reasoning. All you have done in response is to reiterate that prices will go up somewhere down the line. I have tried to explain that, for a number of reasons, dollars themselves do not get their value through a supply/demand mechanism. And because there is zero correlation between the "money supply" (however you want to define it) and inflation, the data (or lack of data) is on my side.

So to sum up, government deficit spending has increased GDP, and there is no evidence whatsoever that it has caused inflation. And that is how government spending increases production - by adding to aggregate demand and inducing more production.

 

[Libertie76]

You have given zero evidence, or even reasoning, why prices should go up when the economy is perfectly capable of increasing production. You have merely applied some Austrian religion.

Your claim is that, all else being equal, new money will result in a devalued dollar, due to the supply/demand of dollars. Then, you don't bother to consider any other condition that might make your assumption incorrect. That's religion, not reasoning. All you have done in response is to reiterate that prices will go up somewhere down the line. I have tried to explain that, for a number of reasons, dollars themselves do not get their value through a supply/demand mechanism. And because there is zero correlation between the "money supply" (however you want to define it) and inflation, the data (or lack of data) is on my side.

So to sum up, government deficit spending has increased GDP, and there is no evidence whatsoever that it has caused inflation. And that is how government spending increases production - by adding to aggregate demand and inducing more production.

Does the increased amount of currency decrease the value of the currency?

 

[What if...?]

What I am saying is that you can have all the dollars in the world, but if there is no supply of actual goods and services to exchange them for they will be totally worthless. That is a fact.

So its a symbiosis.

 

[Lakryte]

You have given zero evidence, or even reasoning, why prices should go up when the economy is perfectly capable of increasing production. You have merely applied some Austrian religion.

I didn't say the prices would necessarily go up.

Your claim is that, all else being equal, new money will result in a devalued dollar, due to the supply/demand of dollars. Then, you don't bother to consider any other condition that might make your assumption incorrect. That's religion, not reasoning. All you have done in response is to reiterate that prices will go up somewhere down the line. I have tried to explain that, for a number of reasons, dollars themselves do not get their value through a supply/demand mechanism. And because there is zero correlation between the "money supply" (however you want to define it) and inflation, the data (or lack of data) is on my side.

So to sum up, government deficit spending has increased GDP, and there is no evidence whatsoever that it has caused inflation. And that is how government spending increases production - by adding to aggregate demand and inducing more production.

First of all, you haven't put forth a valid condition that would make my assumption incorrect. Second, you have merely asserted that dollars are not subject to supply and demand--that is not an explanation nor an argument. Your attempt at explanation--that something with an elastic supply is not subject to supply and demand--is yet another assertion with no basis in reason whatsoever. It is a total non sequitur.

Finally, the data is not on your side, which is why the expansion of the money supply that has occurred over the past several decades has correlated with a large increase in the price level. If the money supply had not expanded, the increase in the price level would have been possible. The Federal Reserve itself admits to trying to cause inflation via expanding the money supply.

The creation of money does not cause economic growth. It leads to an unsustainable structure of production that inevitably ends in a bust. The housing market collapse is the most obvious example of this in recent history. Were it not for monetary expansion, the unsustainable boom would have been impossible.

 

[Lakryte]

So its a symbiosis.

Dollars merely represent the goods that exist. If you double the supply of dollars, ceteris parius, each dollar will simply represent half the supply of goods as it did before, and thus be of half the value. In nominal dollar terms demand will have increased, but in real terms demand remains unchanged.

 

[Econ4every1]

1. "DEFINITION OF 'SCARCITY'
The basic economic problem that arises because people have unlimited wants but resources are limited. Because of scarcity, various economic decisions must be made to allocate resources efficiently."

3. Again it's not about social political views, it's about my economic statement on what is economic growth

4. Not in the debate on what causes economic growth, has nothing to do with happiness index

5. Again, this rant has absolutely nothing to do with economic growth

6. Hahaha DEFINITION OF 'SCARCITY'
The basic economic problem that arises because people have unlimited wants but resources are limited. Because of scarcity, various economic decisions must be made to allocate resources efficiently.

That definition is the basis for economizing

1. Scarcity -

Webster.com - a very small supply : the state of being scarce

Dictionary.com - Insufficiency of amount or supply; shortage...

Library of Economics and Liberty - In economics, scarcity refers to limitations—insufficient resources, goods, or abilities to achieve the desired ends. Figuring out ways to make the best use of scarce resources or find alternatives is fundamental to economics.

Cambridge dictionary - a lack of something

Interesting that only Investopedia leaves out the words, Lack, Shortage, very small, Insufficient.....

Again, show me where there is a shortage of resources, food, land, ect across and economy and we can talk about the affect of scarcity.

3. If you want to limit the conversation to economic growth and ignore how it effects the people within the economy, that's your call. I've found that your position is pretty common amongst Libertarians. They either naively believe that it will work itself out, they haven't really given it much thought or they don't care.

4. I was pretty sure that this conversation had expanded in scope a bit, but as I said, you have to confine it to economic growth to prevent cognitive dissonance, your call, but having said that, I find it ironic that you're quick to point out current economic consequences of fiscal policy which in many ways is succeeding, but you point out it's a time bomb that will ruin the economy and presumably the lives of those in it, but when I point out how the policies you support will effect people, you claim the conversation isn't about people it's about the economy.

5. Strictly speaking no, I'm just pointing out how the policies you support will fail because the supply/ demand dynamic is going to change radically because of the further introduction of AI over the next 20 years and it's exponential improvement and it's effect on jobs, specifically those that we generally think are safe from automation.

6. First, I don't accept that people have unlimited wants....Other than that, see #1

 

[Econ4every1]

it is something that human beings themselves attribute to objects subjectively.

This is true, but you're subjective notion of something cannot and does not change it's objective properties. Oranges objectively provide nutrition and help sustain life, by definition, you're subjective feelings about oranges don't change the fact that it has intrinsic value.

 

[Econ4every1]

Dollars merely represent the goods that exist. If you double the supply of dollars, ceteris parius, each dollar will simply represent half the supply of goods as it did before, and thus be of half the value. In nominal dollar terms demand will have increased, but in real terms demand remains unchanged.

Unless the introduction of new money spurs the introduction of new productivity.

 

[Lakryte]

This is true, but you're subjective notion of something cannot and does not change it's objective properties.

Sure. But objective properties are not what determines value.

 

[Lakryte]

Unless the introduction of new money spurs the introduction of new productivity.

Which ultimately it does not, as history shows us. It just leads to malinvestment and overinvestment into areas that are out of line with real demand, which inevitably result in a correctional recession.

 

[imagep]

Does the increased amount of currency decrease the value of the currency?

It may or may not.

If it is being used to "chase goods", and if there is some restriction on the production of those goods, then yes, it would tend to be inflationary. If the money is sitting in a piggy bank, then it causes no inflation at all. If it is used to purchase goods or services, and if the producers of those goods and services are in a competitive market and can produce more goods and services, then it is not inflationary.

 

[imagep]

Dollars merely represent the goods that exist. If you double the supply of dollars, ceteris parius, each dollar will simply represent half the supply of goods as it did before, and thus be of half the value. In nominal dollar terms demand will have increased, but in real terms demand remains unchanged.

If production of goods and services doubled due to an increase in demand, assuming that there is no restriction on the production of additional goods and service, then there is no reason that the value of the dollar would drop by half.

 

[JohnfrmClevelan]

Feel free to provide it and apply it to oranges.

Since you can eat oranges, they are worth something. You would trade labor for oranges, just to eat them.

Little pieces of paper are worth much less - almost nothing. They have little to no intrinsic value. But when the government makes those little pieces of paper into dollars, that gives them value. The paper is still worthless, but the dollar has value as a medium of exchange.

If oranges were your medium of trade, you would also have to factor in the intrinsic value of the orange (as food). If oranges were scarce that season, it would affect the price of everything else.

When otherwise worthless paper is your medium of trade, you don't have to factor in its intrinsic value (as paper), you only have to value your labor and what you are going to buy with it. And since dollars are never scarce, and the supply is determined by the demand, you don't have to factor in "the price of dollars," as you would have to factor in the intrinsic value of oranges or gold.

Price is not determined by costs of production and labor. Price is subjectively determined by supply and demand. It is through the process of competition that prices tend to eventually end up near the costs of production and labor.

While the supply of dollars can be expanded by an unlimited amount, the supply of dollars is never infinite at any given point in time, and each expansion will have an effect on the price of the dollar. Why would the fact that the supply of something can be expanded without limit mean it is no longer subject to supply and demand?

See above. Or, you could just think about anything that is so plentiful that supply is not a problem. If there are apple trees on every corner, growing year round, and all you have to do is reach up and grab one, the supply of apples is plentiful enough where you don't have to account for scarcity. The only cost would be the cost to reach up and pick one. The value of an apple would be its value as a food source, and relative scarcity/abundance would no longer be a factor.

What is keeping you from catching on here is your continued belief that every increase in the number of dollars is going to affect its value. You are incorporating that Austrian belief even as you are trying to grasp a non-Austrian idea.

All you have to do is look at the large increase in all prices throughout the 20th century to see the effects of an increase in the money supply. If the supply of money had not increased, prices would be far lower today. In fact, it would be impossible for them to be as high as they are now.

Correlation does not equal causation. Inflation happens for lots of reasons, but there is no correlation to be found between the money supply and inflation. And the only reason that prices would be lower with a fixed supply of money would be because money would then behave as a commodity under those conditions.

 

[JohnfrmClevelan]

Dollars merely represent the goods that exist. If you double the supply of dollars, ceteris parius, each dollar will simply represent half the supply of goods as it did before, and thus be of half the value. In nominal dollar terms demand will have increased, but in real terms demand remains unchanged.

This isn't true at all. And that is not how things are valued.

How many dollars do we have right now? Are you counting credit? Possible credit? If I have a credit card in my pocket with a $20,000 credit line, how much money is in my pocket? And what is the total value of all goods, services, assets, real estate, etc. that you can buy with dollars?

When you think about your statement for a minute, you can see how many problems it has. And it's the very same faulty reasoning that says that any increase in the money supply automatically leads to increased prices.

 

[JohnfrmClevelan]

Does the increased amount of currency decrease the value of the currency?

No, as long as the economy is capable of meeting the increased demand.

 

[Lakryte]

If production of goods and services doubled due to an increase in demand, assuming that there is no restriction on the production of additional goods and service, then there is no reason that the value of the dollar would drop by half.

I repeat:

"If you double the supply of dollars, ceteris parius, each dollar will simply represent half the supply of goods as it did before, and thus be of half the value. In nominal dollar terms demand will have increased, but in real terms demand remains unchanged."

 

[Lakryte]

Since you can eat oranges, they are worth something. You would trade labor for oranges, just to eat them.

Little pieces of paper are worth much less - almost nothing. They have little to no intrinsic value. But when the government makes those little pieces of paper into dollars, that gives them value. The paper is still worthless, but the dollar has value as a medium of exchange.

If oranges were your medium of trade, you would also have to factor in the intrinsic value of the orange (as food). If oranges were scarce that season, it would affect the price of everything else.

When otherwise worthless paper is your medium of trade, you don't have to factor in its intrinsic value (as paper), you only have to value your labor and what you are going to buy with it. And since dollars are never scarce, and the supply is determined by the demand, you don't have to factor in "the price of dollars," as you would have to factor in the intrinsic value of oranges or gold.

You are merely repeating the assertion that oranges have intrinsic value and backing it up with absolutely nothing. That people can eat oranges does not give them intrinsic value. I may personally hate oranges and never eat them. That means they have no value to me. Someone else might be allergic to oranges and they would kill him if eaten--they would value oranges even less. Someone else, on the other hand, might absolutely love oranges and value them more than the typical person. The value of oranges is entirely subjective.

Even if we granted that things had intrinsic value, your argument doesn't even logically follow. How much an orange is worth relative to an apple has nothing to do with any made up intrinsic value of either, and everything to do with how the parties in the exchange subjectively value each item relative to the other. The very fact that someone, say, chooses to exchange an apple for an orange means they subjectively value the apple more. The other person subjectively values the orange more. Otherwise there would be no exchange.

See above. Or, you could just think about anything that is so plentiful that supply is not a problem. If there are apple trees on every corner, growing year round, and all you have to do is reach up and grab one, the supply of apples is plentiful enough where you don't have to account for scarcity. The only cost would be the cost to reach up and pick one. The value of an apple would be its value as a food source, and relative scarcity/abundance would no longer be a factor.

What is keeping you from catching on here is your continued belief that every increase in the number of dollars is going to affect its value. You are incorporating that Austrian belief even as you are trying to grasp a non-Austrian idea.

Unless something is infinite in supply, there is always scarcity. Scarcity simply means non-infinite supply. Scarcity is the whole reason economics exists as a field in the first place. Every change in the supply of anything will have an effect on value, dollars included. The only way your position is valid is if you outright reject the laws of supply and demand. Talk about going against the data.

Correlation does not equal causation. Inflation happens for lots of reasons, but there is no correlation to be found between the money supply and inflation. And the only reason that prices would be lower with a fixed supply of money would be because money would then behave as a commodity under those conditions.

There is a correlation. The U.S. has experienced prolonged constant inflation as a direct result of a prolonged expansion of the money supply. Even the Federal Reserve admits this--and actually views it as a good thing. It is mathematically impossible for prices overall to rise while production increases unless there is an increase in the supply of money or a decrease in the demand for money.

 

[Lakryte]

This isn't true at all. And that is not how things are valued.

How many dollars do we have right now? Are you counting credit? Possible credit? If I have a credit card in my pocket with a $20,000 credit line, how much money is in my pocket? And what is the total value of all goods, services, assets, real estate, etc. that you can buy with dollars?

When you think about your statement for a minute, you can see how many problems it has. And it's the very same faulty reasoning that says that any increase in the money supply automatically leads to increased prices.

Why would your credit card as money? Credit cards constitute short term loans. They are liabilities. Money is a financial asset that one may spend—it represents an existing asset that may be used to purchase goods or services. When calculating the money supply, the Federal Reserve includes financial assets like currency and deposits. In contrast, credit card debts are liabilities. Each credit card transaction creates a new loan from the credit card issuer. Eventually the loan needs to be repaid with a financial asset—money. To households, the line of credit associated with a credit card is not a financial asset, only a convenient vehicle for borrowing to finance a purchase.

The Federal Reserve keeps track of the supply of money if you are curious...not sure why you are acting like this data doesn't exist.

I have never said that any increase in the money supply automatically leads to increased prices. I am not going to go over this strawman again--I have done so nearly every post.